Furloughs May Not Save As Much As States Hope Nineteen states have imposed or are considering unpaid time off for government workers as a cost-saving measure. But with the drop in income, workers are spending less, which harms the local economy and costs the state in lost taxes.
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Furloughs May Not Save As Much As States Hope

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Furloughs May Not Save As Much As States Hope

Furloughs May Not Save As Much As States Hope

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This week, Colorado became the latest state to furlough government workers. At least 20 states have imposed furloughs to save money, or are considering doing so. And many private companies have done the same.

But do furloughs actually save money? California has the biggest budget crisis in the country and it's been furloughing state workers since February. Rachel Dornhelm reports on the debate there over the true savings.

RACHEL DORNHELM: On a recent Friday near California's capitol building, things are quiet. It's a furlough day, one of three a month. And across the state almost 200,000 state workers are taking a forced day off. That's supposed to help shave $1.3 billion off the state's budget this year. But the costs to the state may offset a lot of the savings.

Gabriel Taylor, an engineer for a state agency, explains how the furlough days affect his budget.

Mr. GABRIEL TAYLOR (Engineer): In theory, it's a 14 percent pay cut. But in practice for me, it seems a lot more than that because my fixed costs, you know, my mortgage, my food and whatnot, account for a fair amount of my monthly income. And this comes off of the excess of that. So, it's cut my disposable income, so to speak, down by about 50 percent.

DORNHELM: He's not going out to eat as much. He's putting off a home remodeling project he'd been planning for some time. His decision to cut spending cost the state money in lost taxes and it hurts small businesses.

Here at Sacramento's Kabul Kabob Cuisine, a sign in the window reads: When state workers lose, we lose. Owner Hemayat Sawez says Fridays used to be his busiest time, but ever since the furloughs…

Mr. HEMAYAT SAWEZ (Owner, Kabul Kabob Cuisine): Friday's business is down something like 50 to 60 percent.

DORNHELM: And the rest of the week?

Mr. SAWEZ: It's the same. We see something like 20, 30 percent down.

DORNHELM: In addition to lost spending and tax revenue, there are the costs to the state from service disruptions. Some are obvious, people taking more time off private sector jobs because of longer wait times at public offices, like the DMV. Then there are blips, like a truck spilling wine cork lubricant all over a Northern California freeway.

Mr. KEN JACOBS (Center on Labor Research and Education, University of California, Berkeley): So there was a two-hour delay in sending up cleanup crews. Overall, it ended up taking 12 hours to clean up.

DORNHELM: That's Ken Jacobs, chair of the UC Berkeley Center on Labor Research and Education.

Mr. JACOBS: But again, the spill took place on a Friday. It was furlough Friday, there was no one to go out. And all of those delays are an economic cost to the state.

DORNHELM: He says the furloughs also cost the state money directly when agencies that generate revenue shut down to the tune of hundreds of millions of dollars. At the same time, there are savings from shutting down state buildings for what will be the equivalent of seven weeks this year.

John Sullivan is a skeptic. He's at San Francisco State University and has analyzed the effect of furloughs at some private firms. He says furloughs can end up costing companies about double what they set out to save, from lost productivity, poor morale and poor quality control. Most important, companies run the risk of losing their best workers.

Dr. JOHN SULLIVAN (Professor of Management, San Francisco State University): And so what you want to do is, it's just like if you had a cancer, you don't really want to cut off 10 percent of your whole body, you want to target on the cancer.

DORNHELM: He says focused layoffs would be a better solution, but not always.

Professor David Levine at UC Berkeley's Haas School of Business says some furloughs can be very effective, especially when company leadership makes a good case for the belt-tightening and are making sacrifices, too.

Dr. DAVID LEVINE (Haas School of Business, University of California, Berkeley): The main thing that managers have to think about is just that the communication is clear and credible, so that they're not destroying what, in most companies, is much more valuable than the plant and equipment, which is the skills and commitment of their workforce.

DORNHELM: Furloughs may be a better option than layoffs, says Levine. When the economy recovers, your workforce is still there. Still, hard numbers on the bottom line are difficult to come by. Berkeley labor researcher Ken Jacobs says few economists have looked at this.

Do you think that will change now?

Mr. JACOBS: I suspect going through - having gone through this economic downturn, now that there will be quite a bit of data about what happened, I expect this will keep economists busy for a while.

DORNHELM: Jacobs says he's already at work with colleagues on the question.

For NPR News, I'm Rachel Dornhelm.

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